Bacon's Rebellion

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Updates: ACP Customer Charge, M&T, Competition

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by

Steve Haner
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The following updates three pieces of legislation previous featured on Bacon’s Rebellion. Each headline links to the previous posts for background.

SCC Review of Customer Pipeline Costs

Two legislators flipped their votes from subcommittee and voted no in the full House Commerce and Labor Committee, but legislation to reinforce State Corporation Commission authority to review the costs of natural gas pipelines survived on an 11-8 vote.

Delegate Israel O’Quinn, R-Bristol, and Margaret Ransone, R-Northern Neck, had supported House Bill 1718 but reversed themselves in the full committee vote Thursday afternoon.  Ransone complained that she was now confused about the impact of the bill.  Even more curious, new House Minority Leader Eileen Filler-Corn, D-Springfield, abstained, which normally indicates a financial conflict of interest.  

I guess a vote against any generous campaign donor with a long memory counts as a conflict of interest, right?  For Democrats happy to posture against the utility and its controversial Atlantic Coast Pipeline, this is a big Moment of Truth.

The bill must pass the full House by Tuesday to move to the Senate.  There is no similar Senate bill coming the other way.  Dominion Energy Virginia continued to voice its opposition, even though the full committee usually does not debate bills heard in subcommittee.  Dominion lobbyist Jack Rust was joined in opposition by Washington Gas lobbyist W. Scott McGeary.

If the pipeline is finished and used to transport gas to Dominion power plants, as expected, the SCC will then review the price that Dominion wants to pass along to its customers for their share of the construction costs and profits.  Dominion argues the SCC authority to rule is sufficient.   The bill requires the SCC to address three key questions, questions which you would think Dominion would be happy to answer,  They are especially important because both the pipeline and utility are owned by the same corporate parent, so this is hardly an arms-length transaction.

At the time the decision to contract for gas from the pipeline was made, did the utility need the gas? Were other alternative sources considered and weighed?  Did the utility decide on a reasonable basis that the contract was the lowest cost long term option for supplying natural gas?  Eight Republican legislators have cast votes against requiring answers to those questions before we pay for the pipeline.  Let’s see who else does.

Original Cost Assessment of Machinery and Tools

Also still in doubt is a key local tax reform measure important to Virginia’s manufacturing sector.  A 5-3 vote in subcommittee for House Bill 2640 became a 14-8 vote in the full House Finance Committee.  There is no partisan pattern in the vote; rather it reflects sensitivity to another powerful lobbying interest in the legislature, local governments.

The question is whether the reference in state law to original cost as a method to assess the value of machinery and tools refers to the cost paid by that company, or a higher price paid by a previous owner of used equipment.  The assessed value drives the amount of tax.  The bill grows out of a Hanover County tax dispute over a dying paper mill where the Supreme Court of Virginia allowed the higher assessment.  The bill would require the county recognize the price paid by that taxpayer.

The bill should have already been acted on, but patron Kathy Byron has taken the bill by for the day several times.  Tactically such delays tend to favor the opposition, unless it means additional language is being prepared to defuse opposition.

Again, a no vote sends a clear message of support for local tax collectors, and unconcern for business complaints about a heavy tax on capital investments.  The local government hole card is a threat that a failure to squeeze all the M&T tax possible out of business would force higher taxes on private homes.

Exits to Retail Competition Remain as Bill Amended  

Thursday’s House Commerce and Labor Committee also approved a substitute version of House Bill 2477, narrowing the focus to only large retail customers of Appalachian Power Company.  The original bill was statewide and would also have effectively ended retail competition for large loads on Dominion.

The much simpler revised bill imposes some additional costs on APCo customers who depart for third-party generation in the future.  APCo has a different business relationship with the regional transmission organization PJM and complained that the loss of a large customer left it stuck with certain expenses another PJM member might not face.  Those additional costs will reduce the incentive to seek another supplier.

Any future customer leaving “shall continue to pay its incumbent electric utility for the non-fuel generation capacity and transmission related costs incurred by the incumbent electric utility in order to meet the customer’s capacity obligations.”  The substitute reduces from five to three years the notice such a customer must give before returning to the system, although that delay is up to the utility and it might welcome the customer back.

Also continuing to advance is the large customer-related bill sought by APCo, and in this case fully inclusive of Dominion, to allow a general customer rate adjustment clause to pay for new (and speculative) transmission lines to unused industrial locations.  The committee killed several other bills that would have allowed large and small customers an easier choice of supplier, protecting the monopolies of both major utilities.

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9 responses to “Updates: ACP Customer Charge, M&T, Competition”

  1. Acbar Avatar
    Acbar

    Re costs of the pipeline contract imposed on customers: I still do not understand why this legislation is necessary. The Commission clearly has the authority to investigate and to reject this cost as a matter of its general ratemaking jurisdiction over Dominion’s retail rates. But more important, there’s already a specific Virginia statute requiring the Commission to approve any contract between a regulated utility and its affiliate for goods, services, property, rights of any kind, etc.: VA Code sec. 56-77. If the SCC has the will to act, it does not need further authority to do so and, arguably, is already required to do so.

    Re the Apco concern about capacity costs, this is an artifact of the PJM marketplace that affects utilities that depend on capacity contracts with independent generators to satisfy PJM’s reliability requirements, rather than owned generation. Those capacity contracts are entered into at least three years in advance based on projected utility loads — so it’s only fair that if a chunk of that load chooses to leave, the utility should not be stuck with the capacity commitment to serve its departed load.

  2. Steve Haner Avatar
    Steve Haner

    I’m not an attorney and have never reviewed a case record on a affiliate issue. Current law may be adequate, and I don’t disagree with the SCC’s position that the proper time to take up the question is when the gas begins to flow and the utility puts the cost on its fuel factor charge. But existing authority is not changed by this additional set of issues to be addressed, and I have often seen the utility say one thing at the Capitol, and then scoot down Main Street to the SCC courtroom and contradict itself. There is no question in my mind that when this case comes, Dominion will argue that the SCC’s scope is very narrow. If this bill fails, it will certainly quickly forget that it said these questions are already covered, and will then tell the SCC the GA wants those questions ignored.

    Some advocates for this bill think it will dissuade the utility from completing the pipeline, but I doubt that. If the SCC limits cost recovery to the price available from the lowest-cost alternative, that will ding the profit margin certainly.

    1. Acbar Avatar
      Acbar

      Yes, that sounds like Dominion. I don’t mean to suggest that the bill should not be passed. Any regulatory agency likes to know its back is covered in a hot situation like this. But what’s striking to me is that the Commission has foregone ANY, let alone aggressive, use of its existing authority in the very sort of situation that authority was originally enacted to address. In a word, they are cowed. No, they should not wait until the gas flows; that obviously is too late for the utility to go to the financial markets and say THEY have their back covered for this project. Good regulation is not about uncertainty and backbiting; it’s about leadership and up front decisionmaking — a kind of detente, partnership even, that no participant – regulator, utility, customer interveners, ratepayer advocate – wants to disturb fundamentally. That is entirely absent here.

  3. Jane Twitmyer Avatar
    Jane Twitmyer

    Opponents of the ACP, worried about the fact that Virginia’s need for the pipeline, as reviewed by FERC, was based on bad numbers and confirmed by Dominion as contracts with another part of the holding company, an affiliate. FERC is required to evaluate need for the pipeline according to NEPA, national environmental policy, but FERC has allowed affiliated contracts to suffice.

    My own take on that was that affiliate contracts are easily canceled with no penalty and then the gas coming through a pipeline built with eminent domain can be exported instead. Dominion’s cancellation of the 2 gas plants that represented the contracts and listed as being built in the mid 2020’s, confirms the bad numbers.

    Power for the People has an article on this affiliates challenge as it was Sierra that took the issue to court. https://powerforthepeopleva.com/tag/affiliates-act/
    As described there the process in the state is upside down, relying on the evaluation of need by FERC, I guess. FERC’s acceptance of affiliate contracts as the demonstration of need is a different challenge.

    The Affiliates Act “requires public utilities to get prior approval from the SCC for any “contract or arrangement” with an affiliated company. The SCC had refused the Sierra Club’s petition to enforce the provision, saying the Commission could review the deal when the pipeline is operational and Dominion tries to charge its customers for the use of it.
    That is upside down!

    “Virginia Supreme Court joined the Governor, the State Corporation Commission (SCC), the Department of Environmental Quality and most of the General Assembly in refusing to question the sweetheart deal under which Dominion Energy Virginia committed its captive ratepayers to purchasing billions of dollars of fracked gas shipping capacity on the Atlantic Coast Pipeline, of which Dominion itself is the largest shareholder.”

    So … ‘upside down’ stays in place and the evaluation of need, and Dominion’s ability to charge its customers for the pipeline reservations remains scheduled after the build is completed. The Court had found a crazed lawyerly loophole to rest it’s decision on. Hence the reason for the law.

    1. Acbar Avatar
      Acbar

      Yes, that sounds like the VA Court. Asking any court to compel a regulatory agency to apply its discretion in a particular way is rarely successful. The whole point of having administrative agencies is to delegate — that is, to give them the legislature’s discretion to do whatever the legislature could have done, within the scope of their delegated authority which is usually written in very broad terms.

      Any agency – the SCC included – has to develop its own precedent, its own relationship with its regulatees and the other interest groups. If any one of them regularly overplays — or underplays — its hand, it will ultimately lose credibility and influence. So, here: the Affiliates Act clearly contemplates Commission review of important contracts between affiliates. Why? Because, obviously, the terms might not be arms-length but skewed unfairly to favor the afffiliate. When does it make sense for all concerned to look at this? Why of course, at the time the affiliates propose to enter into that contract, knowing the same things they know at the time, the same forecasts, the same options. Review after the fact places everyone under the burden of consequential commitments already made, money already spent — no Commission is going to unravel all that lightly; so why keep that uncertainty hanging there at all, who benefits from the faint hope of reversal that almost surely won’t happen (even if a court says waiting to decide is within the Commission’s lawful discretion)? This is not good regulation but political cowardice and nobody wins.

      The FERC has another problem: precedent from the 1930s on has hardened into a powerful tradition of non-interference with pipelines’ decisions to risk their capital on interstate projects that depend on optimistic assumptions and run roughshod over local obstacles from people who don’t see the big picture or simply want to extract their pound of flesh from the project. Their pipeline staff see that as in the public interest. From a national economic point of view there are powerful arguments to be made in support of someone — if not the FERC, who? — that will help push big projects like interstate pipelines through the mind-boggling obstacles they face to completion. Unfortunately for them, the exercise of the FERC’s authority in this manner is conditioned upon a finding of “need.” We know intuitively that “need” means more than “the utility wants” but: whose need, measured how, conflicts weighed how? As you mentioned, the FERC itself has been re-examining how to balance these things and they are the ones that ought to do so (God help us if Congress got involved!) but the process certainly has been proceeding at a glacial pace.

  4. TomH Avatar
    TomH

    Let’s consider House Bill 1718 as a Consumer’s Rights bill. As Steve has noted, Dominion often tries to narrow or avoid issues heard by the SCC in order to increase their profit. The SCC often avoids dealing directly with these issues for fear of raising the GA’s ire.

    Acbar is correct that the SCC has the right to review these contracts, but given the sensitivity of this issue, what harm does it do to clarify the SCC’s authority by specifying its ability to base it judgment, at least partially, on the answer to these questions?

    “At the time the decision to contract for gas from the pipeline was made, did the utility need the gas? Were other alternative sources considered and weighed? Did the utility decide on a reasonable basis that the contract was the lowest cost long term option for supplying natural gas?”

    These are standard issues when considering any new energy project. A project developer should have answered these questions before any money was invested and an application to build it was submitted. Why not be specific and make it part of the SCC review and reduce the chance that the SCC could be bullied by the utility or the GA and thus provide less protection to Virginia ratepayers.

    We need to return to an objective and balanced review of rates and utility projects. This serves the interests of the utilities in the long-term and the interests of our citizens and businesses from the outset.

  5. Jane Twitmyer Avatar
    Jane Twitmyer

    True Tom .. but this is primarily a matter of when. FERC should have asked those questions but because they accept affiliate contracts they didn’t. The question of accepting affiliate contracts as a demonstration of need is on FERC’s list of potential changes to their practices that are currently under review.

    Sierra petitioned the SCC to do the missing review before the building got started. The SCC declined saying that their review doesn’t come into play until they are asked to change the rates in some way. In other words … after the pipeline is complete. That is upside down process! And that is what the proposed legislation is attempting to remedy. It seems only fair.

    1. Acbar Avatar
      Acbar

      They did say that, and that regulatory attitude is just what’s wrong here. See longer reply to SH above.

  6. vaconsumeradvocate Avatar
    vaconsumeradvocate

    Over the last 20 years Virginia businesses have done a great job of undermining the SCC by getting the legislature to tell it how to rule on any number of issues. The repeated and unfair criticism of the SCC, making SCC Commissioners promise to bow to the General Assembly before they are appointed of reappointed, the forcing the SCC to say, if asked “The Commission has no position on the bill”… It goes on and on. This consumer protection is required or we can guarantee Dominion will claim the SCC has no choice but to accept its choices for consumers.

    Historically, the SCC didn’t add to consumer bills costs of new infrastructure until it was used and useful. Now some costs are included along the way and some review happens along the way. The utilities argued that they couldn’t carry the costs so long. In every case, the utility wants to preserve its flexibility to decide how to do things and not have the SCC or any other entity weigh in. That’s not how it should work for a monopoly provider. They remain a monopoly provider but have extraordinary control over the bills paid by consumers and they continue to limit ways consumers can choose renewables, etc. They have too much control over what rate payers must pay and the regulatory process. No other state is so generous in granting power to its utilities. This bill is badly needed to give rate payers the certainty that their best interests will be considered on this one issue, at least, and that the company will not be able to simply act to its best interest as it has gotten so good at doing under current law. If the benefits of the planned infrastructure really are what the company claims, this legislation should not concern it.
    I wish the SCC had a role in approving such infrastructure before it’s built but we are a long way from being able to make that happen. It seems logical that it should but this does not work on logic or fairness. This legislation is a very tiny step to protect businesses and consumers. A very tiny step that should cause no problems for the utility if what it’s been saying about the benefits of the infrastructure are accurate. The company’s protests against this minor clarification of consumer protection are what raise red flags. What are they trying to hide?

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